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Professor Lin Yifu Interprets the Future Development of China’s Economy

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On May 12th, PKU Shenzhen alumni came from all parts of China to return to their alma mater. As a part of the alumni conference, Professor Lin Yifu held a lecture to discuss China’s economic status with alumni from Guangzhou, Shanghai and Hong Kong.



Professor Lin succinctly stated his predications on China’s economic status and the world economy. He believes the world economy will endure a sluggish long-term recovery process. However, he was quite confident about the future of the Chinese economy. “The landscape here is beyond comparisons,” Lin emphasized. At the same time, he also expressed his confidence in Chinese companies in seizing opportunities generated by the China’s economic growth. “There should be many bright stars from China in the future,” Lin added.


（Professor Lin sheds light on China’s economy）

Professor Lin went on to explain why he expressed such a dark view on the world’s economy in the future. First, he mentioned that the economy has already started to decline with the 2008 economic crisis. Lin said the devastation caused by this crisis cannot be repaired quickly. It will take a long time to absorb and heal from the chain reactions caused by the crisis. Although central governments are taking all kinds of measures to stimulate their sluggish economies, the effect is minute. When talking about Eurozone crisis, Professor Lin stated that the actions taken by IMF and European Central Bank to rescue “PIGS” are actually quite short-sighted. He compared it to taking pain medication that cannot heal, but instead, only relieve the pain. He believes policies like currency depreciation cannot turn the economy around. On the contrary, it will likely trigger a currency war and inflate the world economy and as a result, exert a negative impact on the world’s economic growth.



Lin continued to point out that considering the fact that high debt to GDP ratio in European countries and Japan has exhausted growth potential, it may end up dragging down the economy. Compared with over 100% debt to GDP ratio in developed countries, China’s 60% ratio allows China to be flexible in using debt to support economic growth. This is another source of confidence in the prospects of China’s economy. Lin continued to elaborate on the world’s economic development and pointed out that perfecting the economic structure is the only way to survive the crisis. “Structure reform” was mentioned repeatedly by Professor Lin, reflecting his expectation for structure reform in Chinese economy.

When asked why he was confident in China’s economy, Professor Lin said that the fall in the economic growth rate should be temporary, and it’s mainly due to the recession of other economies. He shared his viewpoints on whether or not recent frustration is due to structural defect of the economy, or due to the regular economic cycle. Lin continued with his recipe for economic problems in China such as, low investments, efficiency and the over-capacity of production. He pointed out that China is not a country in need of foreign currencies; on the contrary, it owns over 3.4 trillion USD in foreign reserves. China has adequate capital for domestic need and for investment and industrial updating. Besides, he argued that the benchmark of “middle income” is not constant. 10,000 USD per capita is usually viewed as the benchmark. But when China’s GDP per capita reaches that level, United States’ GDP per capita may be as high as 50,000 USD, which means Chinese average income is still only one fifth that of U.S. As a result the advantages of cheap labor still exist. Lin emphasized, that compared with other countries in Asia, China has unique advantages in geography, history and other factors, which have fueled its fast growth over the past three decades, and still play an important role in its future development.




 (Audience members ask Professor Lin questions）

Lastly, Professor Lin shared his insights on how to make full use of these advantages. On one hand, China should continuously maintain its investment-led model of growth and at the same time, improve its investment efficiency. In Lin’s opinion, the widely discussed consumption-led growth model is actually a misunderstanding. The increase in consumption should be the result—not the impetus of the economic development. Therefore, the central government should try to improve efficiency in using economic factors. When productivity increases, people will enjoy a higher income which then generates higher social consumption and results in the formation of a flourishing economic cycle.
 
Professor Lin inspires domestic scholars and professors to engage in their own economic studies. New ideas and theories can guide the direction of China’s economic growth. In addition, Professor Lin encouraged entrepreneurs to seize the opportunities of growth, to go abroad and dare to be an industrial leader. Only in this way can the unique landscape in China continue.

Written by Wenwu
Translated by Li Xiao
Edited by Gretta Herrin
Photos by Wu Hao, Zhong Xiaohong, Hao Yanjun


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